NO. 96-072 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1996 

MARLEN G. SAVIK, an individual 

and JACK W. PIIPO, an individual, 

Plaintiffs and Appellants, 

v. 

ENTECH, INC., a Montana Corporation; 

MICHAEL J. MELDAHL, an individual; 

and DOES l-100, inclusive, 

Defendants and Respondents 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Missoula, 

The Honorable Ed P. McLean, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Donald V. Snavely; Snavely Law Firm, Missoula 

Montana 

Cynthia K. Smith; Cederberg, Shott & Smith, 

Missoula, Montana 

For Respondents: 

Terry J. MacDonald; Garlington, Lohn & Robinson, 

Missoula, Montana 

Patrick T. Fleming, Attorney at Law, Butte, Montana 

Filed: 

Submitted on Briefs: August 8, 1996 

Decided: September 12, 1996 
Justice W. William Leaphart delivered the Opinion of the Court. 

Marlen G. Savik and Jack Piippo (Savik and Piippo) appeal from 

the jury verdict of the Fourth Judicial District Court, Missoula 

County, denying their request for damages for breach of contract. 

We affirm in part, reverse in part and remand. 

For purposes of this decision, this Court will discuss only 

the following dispositive issues: 

1) Did the District Court err in dismissing Savik and 

Piippo's breach of contract claim? 

2) Did the District Court err in instructing the jury on 

parol evidence when Savik and Piippo sought recovery 

under a theory of fraudulent inducement? 

BACKGROUND 

In 1983, Savik and Piippo organized Touch America, Inc., a 

long distance telephone company with services in Montana. In May 

of 1990, Savik and Piippo were the sole stockholders and principal 

officers of Touch America and were in control of all of its 

operations. Entech is a Montana corporation that has owned and 

operated various non-utility businesses including businesses 

involved in communications technology. On May 15, 1990, Savik and 

Piippo entered into a written contract with Entech for the sale of 

all of the assets of Touch America. During negotiations and 

following the negotiation period, Entech's Vice President, Michael 

J. Meldahl (Meldahl) was the chief negotiator for Entech. 

Following negotiations, Entech purchased all of Touch America's 

assets pursuant to a written sale agreement. 

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The Sale Agreement (Agreement) set forth a variable sale price 

consisting of a $1.15 million down payment, plus a distribution to 

Savik and Piippo of twenty percent of the net profits of the 

business generated during the first five years after the sale. The 

net profits distribution had a maximum payment of $783,545. 

The Agreement also required that Savik and Piippo be permitted 

to work for Entech for three years after the sale of Touch America. 

The Agreement stated that Savik and Piippo would "be entitled to 

those benefits that are afforded to other employees under Entech's 

employment policies." In accordance with the Agreement, Savik and 

Piippo worked for Entech for three years prior to their 

termination. 

In 1993, Savik and Piippo brought an action in District Court 

claiming damages based on two theories. First, Savik and Piippo 

claimed that Entech breached the Agreement by terminating their 

employment after three years. Second, Savik and Piippo claimed 

that they were fraudulently induced into entering the Agreement. 

The District Court granted summary judgment dismissing Savik and 

Piippo's claims of breach of contract finding that the express 

terms set forth in the contract were clear and the parol evidence 

rule barred consideration of the oral communication between Meldahl 

and Savik and Piippo. Therefore, the only remaining issue before 

the District Court was whether Entech fraudulently induced Savik 

and Piippo into entering the Agreement. 

At trial, Savik and Piippo argued that the employment clause, 

along with various representations by Meldahl, created the 

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impression that they would become permanent Entech employees. 

Meldahl's alleged representations are the basis of the fraudulent 

inducement claims made by Savik and Piippo. Following a jury 

verdict in favor of Entech, Savik and Piippo brought this appeal 

challenging, among other things, the District Court's decision to 

dismiss their breach of contract claim as well as jury instructions 

regarding parol evidence. 

DISCUSSION 

1) Did the District Court err in dismissing Savik 

and Piippo's breach of contract claim? 

Our standard of review in appeals from summary judgment 

rulings is de novo. Mead v. M.S.B., Inc. (1994), 264 Mont. 465, 

470, 872 P.2d 782, 785. When we review a district court's grant of 

summary judgment, we apply the same evaluations as the district 

court based on Rule 56, M.R.Civ.P. Bruner v. Yellowstone County 

(1995), 272 Mont. 261, 264, 900 P.2d 901, 903. 

Savik and Piippo's claims of breach of contract stem from 

their interpretation of the intent of paragraph 4.13 of the 

Agreement. That paragraph provided in relevant part: 

Subject to satisfying Entech's hiring policies, 

Entech shall retain Messrs. Savik and Piippo for terms of 

three (3) years each at annual initial salaries of 

$60,000 each. Messrs. Savik and Piippo will be entitled 

to those benefits that are afforded to other employees 

under Entech's employment policies[.l 

Savik and Piippo maintain that the "benefits" available to them as 

Entech employees included not only vacation, health insurance, and 

pension, but also permanent employment terminable only for good 

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cause. Savik and Piippo based their interpretation of the contract 

on oral representations that they claim were made to them by 

Meldahl. They also claim that the term "benefits," as used in the 

contract, was ambiguous and thus parol evidence was needed to 

explain what the parties intended in using that term. 

The parol evidence rule in Montana has been codified under §§ 

28-2-904, and 28-2-905, MCA. Section 28-2-904, MCA, explains, 

"[tlhe execution of a contract in writing, whether the law requires 

it to be written or not, supersedes all the oral negotiations or 

stipulations concerning its matter which preceded or accompanied 

the execution of the instrument." Section 28-2-905, MCA, further 

provides that when an agreement has been reduced to writing by the 

parties, there can be no evidence of the terms of the agreement 

other than the contents of the writing except when a mistake or 

imperfection of the writing is claimed or when the validity of the 

agreement is the fact in dispute. In their claim for breach of 

contract, Savik and Piippo contend that the term "benefits" was 

ambiguous and thus the court should have allowed parol evidence as 

to statements made to them by Meldahl which led them to believe 

that "benefits" included permanent employment. 

This Court has held that where the terms of the contract are 

ambiguous and uncertain, evidence of attending circumstances is 

admissible. Molerway Freight Lines v. Rite-Line Transp. (1995), 

273 Mont. 95, 100, 902 P.2d 9, 12. In Monte Vista Co. v. Anaconda 

Co. (1988), 231 Mont. 522, 528-29, 755 P.2d 1358, 1362, this Court 

explained: 

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An ambiguity exists when a contract is subject to two 

interpretations and parol testimony can be used to 

determine what the parties intended. [Citations 

omitted.] However, intent of the parties is only looked 

to when the agreement in issue is not clear on its face. 

[Citation omitted.] 

In the present case, the District Court gave the following 

rationale for granting summary judgment: 

The express language of that provision c4.131 clearly 

establishes a three year term of employment. Plaintiffs 

contend that the intent of the provision was to bind the 

individual Plaintiffs to a minimum of three years, and 

that the language in the provision entitling Plaintiffs 

to "those benefits that are afforded to other employees 

under Entech's employment policies" include the "benefit" 

of permanent employment absent good cause for firing 

Plaintiffs. This Court does not find that the provision 

language is ambiguous and therefore, there is no need to 

look to the parties' intent, and in any event, such 

interpretation would require adding language to the 

agreement which would contradict the express three year 

term in violation of the parol evidence rule. 

After reviewing the record and the Agreement, we agree with the 

District Court that the provision regarding "benefits" and three 

years of employment was clear and unambiguous and did not include 

permanent employment. Our decision in Sherrodd, Inc. v. MorrisonKnudsen Co. (1991), 249 Mont. 282, 815 P.2d 1135, is on point. In 

that case, Sherrodd had contracted to perform certain earth work 

for Morrison-Knudsen. The terms of the written contract provided 

that all of the earthwork would be performed for a lump sum of 

$97,500. Sherrodd, 815 P.2d at 1136. After completion of the 

work, Sherrodd claimed that it was owed more money than the $97,500 

because it had been pressured to execute the contract and that it 

had been told that a deal would be worked out wherein Sherrodd 

would be paid more than the sum provided for in the contract. 

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Sherrodd, 815 P.2d at 1136. The district court granted summary 

judgment to Morrison-Knudsen, holding that the parol evidence rule 

precluded Sherrodd from relying upon oral representations which 

were not incorporated into the written contract. This Court 

affirmed and held that Sherrodd's contention that the $97,500 did 

not cover the entire job contradicted the terms of the written 

agreement. Sherrodd, 815 P.2d at 1137. In applying the parol 

evidence rule, we concluded: 

the compensation of Sherrodd is governed exclusively by 

the written contract and that Sherrodd's claims are 

barred under the parol evidence rule. We hold that the 

District Court did not err in granting summary judgment 

for defendants. 

Sherrodd, 815 P.2d at 1137. As with Sherrodd's attempt to vary the 

amount of compensation specified, Savik and Piippo's reliance on 

oral representations that would vary the expressed term of 

employment was barred by the parol evidence rule. Accordingly, the 

District Court was correct in granting summary judgment and 

dismissing the breach of contract claim. 

2) Did the District Court err in instructing the 

jury on parol evidence when Savik and Piippo 

sought recovery under a theory of fraudulent 

inducement? 

The standard of review of a district court's conclusions of 

law is whether the court's interpretation of the law is correct. 

Carbon County v. Union Reserve Coal Co. (19951, 271Mont. 459, 469, 

898 P.2d 680, 686. A district court has broad discretion in 

instructing the jury and we will not reverse the court on the basis 

of alleged instructional errors absent an abuse of discretion. 

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Werre v. David (Mont. 1996), 913 P.2d 625, 635, 53 St.Rep. 187, 

193. Further, when we examine whether jury instructions were 

properly given or refused, we consider the challenged instructions 

in their entirety, the evidence at trial and other instructions 

given by the court. Cechovic v. Hardin & Associates, Inc. (1995), 

273 Mont. 104, 116, 902 P.2d 520, 527. 

When a party alleges fraud in the inducement, it is incumbent 

upon the district court to admit parol evidence on the question. 

Dew v. Dower (1993), 258 Mont. 114, 120, 852 P.2d 549, 552; Dodds 

v. Gibson Products Company of Western Montana (1979), 181 Mont. 

373, 377, 593 P.2d 1022, 1024. For a jury to adequately consider 

a party's claim of fraudulent inducement, it is critical that it 

consider evidence outside of the written agreement as such evidence 

goes to the heart of the claim. 

In the instant case, the District Court gave the following 

jury instructions over Savik and Piippo's objection: 

[No. 81 The execution of a contract in writing, 

whether the law requires it to be ornot, supersedes all 

the oral negotiations or stipulations concerning its 

matter which preceded or accompanied the execution of the 

instrument. 

[No. 101 A contract is to be construed according to 

the intention of the parties at the time of contracting. 

If the contract is reduced to writing, the intention of 

the parties is to be ascertained from the writing alone, 

if possible. 

These instructions were given to the jury despite the fact that 

Savik and Piippo's contract claim had been dismissed and, 

thereafter, they were advancing only a claim of fraud in the 

inducement. In effect, these instructions kept the jury from 

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considering the evidence Savik and Piippo brought forward in 

support of their claim of fraudulent inducement. 

When fraud is alleged, par01 evidence may be considered by the 

jury. Section 28-2-905(2) MCA. See also Flemmer v. Ming (1980), 

190 Mont. 403, 621 P.2d 1038. Limiting a jury's consideration of 

evidence to a written agreement creates an illogical requirement 

that an alleged fraud leading to the creation of the contract be 

demonstrated by a writing. Webcor Electronics v. Home Electronics 

(1988), 231 Mont. 377, 382, 754 P.2d 491, 494. This Court has 

previously held that, notwithstanding the parol evidence rule, 

fraud in the inducement is provable by parol evidence. -I Dew 852 

P.2d at 552; Dodds, Mersy v. Gibson Products Co. (19791, 181 Mont. 

373, 377, 593 P.2d 1022, 1024; Goggans v. Winkley (1970), 154 Mont. 

451, 459, 465 P.2d 326, 330. 

In the instant case, the District Court's instructions 

regarding parol evidence effectively precluded the jury from 

considering pre-contract conversations between Meldahl and Savik 

and Piippo. Since Savik and Piippo's claim of fraud in the 

inducement was based on pre-contract representations by Meldahl, 

the communications between Savik and Piippo and Meldahl were 

crucial to the jury's consideration. 

Having reviewed the jury instructions in their entirety, we 

hold that the challenged instructions effectively precluded the 

jury from considering communications between the parties outside of 

the written agreement. Evidence of communication between the 

parties was crucial to Savik and Piippo's claims of fraudulent 

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inducement. We hold that the District Court abused its discretion 

by instructing the jury not to consider parol evidence in a claim 

of fraudulent inducement. 

Accordingly, we affirm in part, reverse in part and remand for 

a new trial on the issue of fraudulent inducement. 

We concur: 

Justices 

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